KR - Earnings call transcript Q1 2019

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Operator

Good morning, and welcome to The Kroger Company First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Rebekah Manis, Director, Investor Relations. ahead. go Please

Rebekah Manis

Good Gary. thank for you Thank morning, us. joining you, and

that that have obligation remind I We today's filings, you materially. an predictions, discussion A begin, is ongoing can information. we or of you actual want statements events and want caution may contained detailed the statements. Before differ to but on forward-looking to effect that results are include discussions to such in that factors material many SEC Kroger basis no assumes our update believe our we a business on will

In of quarter and remarks, call prepared website Both press yourself our to necessary. this question on question, order ir.kroger.com. as can, Thank from broad at prepared we from you. we as follow-up conference cover many look first be our one limit available release ask you questions. our forward our remarks a that please to if we range topics and one After will your you taking of to

to turn Executive McMullen. I will Rodney Officer, call Chief and Kroger's the Chairman now over

W. Rodney McMullen

morning and Rebekah. Chief Good XXXX Officer, is us. Kroger's first everyone, to you, thank quarter result joining you Financial Millerchip. Gary With Thank me for review

had cut last you by started conversation the We with out acknowledging our that quarter us. we work for

our we progress plan, energized first and quarter the on in brought We reflect first that that disciplined Kroger. are making and focus Restock are examples several quarter. our team results challenge, by energy There to the are the transformation that

anywhere. stores focused to customers the serve customers improved expect we're additional partnerships have grocery our That All that by anytime, exciting of to online, an focus. create building can value. in work omni-channel customer That obsession anything, we're experience platform our upon on why is why and with starts redefining this with is

is end, To while our start, of when sales comes intensifying trending results. it up know Kroger's off front that guidance and the right further solid to sales it second important Restock identical are than that do we better first the a by said, can focus, year that is to quarter customer range. Kroger we identical toward better our the That I say quarter-to-date moving

is Kroger's focus double-digit of brand those as our competitive of mix brands. products on basis advantage the grew gains most own powerful ongoing Selection unit Truth share XX brands performers. one X.X% in such best shifting also the points in in XX.X% and premium led reach One The quarter. and our quarter to to Simple gained share Private the to

food love innovative We our know to that brands our hungry and can they customers Our put In fantastic with quarter, get our that quest food and In first first for coming we they are are Kroger. that experiences bringing only shopping our as authority, the and to and customers. trends items. new Brand by to products serve tastes, XXX introduced we new America's

cream. line Selection Our Belly the predicted Unicorn and Swirl including Artesian customer's we fall trends Pork food jerky, Kroger flavor ice and new Selection Private items favorite XXXX, Bites, key in for Deluxe Private with

million $XXX the in over incremental delivered during quarter. items New sales first

platform we're want. they anything Customer to they also they and anywhere anytime building why a obsession want, is serve want, customers

a in-store have online solution. they need want experience. distinguish food-related easiest, a solve and seamless an don't customers Rather, most or and Our between typically to the problem

digital in sales XX% Our quarter. grew the first

use us come they to Ship. or a or everyone of first for with shop into delivery. By quarter. or the customers this end in store, our who reach shop means shop America have area whether decide modalities the will in ability our delivery of pick-up with also brick-and-mortar to a coverage of Kroger XX% year, the pick-up through our expanded to the services, Kroger, store XX% can This also We customers our in

omni-channel out leading run the billion, be XXXX, to Kroger of will to rate positioning XXXX gone magnitude dollars we which the while about transformation, middle the no frame retailer food toward only our the that $X billion of in I a are sales rate sales we've to the digital trend run it's annual digital future. of have important in Since industry. are $X call up because in we from made. this efforts Our the a progress

our another XXXX is Value for Kroger. pillar and Customer pivotal year Partner for Restock

industry We innovators stores Microsoft, and improve and Home digital Chef, by partnering continue our customer experience across in Ocado, Walgreens. such the to our properties as with

All provide accelerate of anything, our ability to partners these customers anytime, anywhere.

experiences. America's partner first in Ocado. customer We nexus and center between customer were shares for break technology our the last to powered fulfillment exploring excited innovative ground week Each passion on Ohio by

replicating time Kroger's open across Ocado America. ever serve the America. first will technology the create customer to introduce to will in with fresher customers experience, e-commerce a customer facilities everyone logistics and food to means additional for This Kroger than transformative before. intend seamless model in fulfillment get turn We fulfillment faster partnership

also out profit on on are deeper the in core customers business profitable building We also Alternative our Alternative maintaining to making organizational growth. several our our while delivering made allow changes We've progress for stream concentration for structural business. focus laser

Kroger is traffic of built margin-rich the new experience supports improve upon businesses. which creating asset-light rich a proprietary customer generated the to data from then cycle virtuous collection customer our

incremental Alternative into in streams continue as profit more Finance, profit Kroger operating mature profit an data contribute to such will continue customer Personal from in the and This and primarily media XXXX. generated businesses, estimated our XXXX and million be net to to Alternative streams $XXX expect grow We accelerate insights.

of in business Alternative initiatives portfolio incubation. other are There within stages that earlier our

For to impact PearlRock grow a Partners, consumer Initiatives brands. results help after to more generation next platform product our identify, formation the example, Partners a such and PearlRock of XXXX. then meaningfully and the in, to expected Kroger as leading during of have we Restock contribute invest are recently announced small

statements Alternative on profits will up provide where to flow our about made will financial Gary transparency commitment financial our Following through we March remarks. his our in stakeholders, additional during

future. is the transforming time finding right is underlying change. to respect of We've past while successions, the through secured of of managing retail leadership the CIO next-generation company's right chapter company creating by complex the One success difficult proactively essential continued the roles. at often guide leaders next in including challenges CFO principle and to several coach Kroger's people and The pivotal the the and a

We've transformation also of the several most our roles, notably our and Business partnerships executive including to growth leaders focused portfolio senior-most Kroger's business Development support Alternative of model. New

Senior managed, to my in carefully deliberate, confidence is in to Presidents and board directors. transition Kroger's congratulate new Kroger leadership I'd forward. again made partnership with our of and all Vice underscore of ability lead their like Every

is a area Kroger social, and is leadership governance our number of investors. in natural the Waste recognition for from of a Hunger/Zero environmental, which areas, gaining of growing and important Zero plan is Another extension

our America's how deeper setting to affecting grocer, bags, plastic single-use are QFC announce is and for look first phase-out we our starting and ago, the Pacific to became a table took the with division the a As A grocery retailer major the plastic on sustainable environment committed future. we communities of Northwest. year U.S. in

single-use platform, fanfare media January in to a expand. introduced and Loop. Many retail announced brands durable exclusive packaging list for uses in Loop much Kroger U.S. our familiar at interests. to World grocery partner the Davos the and Economic month, this to in and are suppliers help be system product Forum plastics. continues the new that included reduce is to commitment Loop the TerraCycle Earlier

we shareholders. the hygienically transforming, use it to retail Restock to Loop is that the was Kroger proactively deliver industry the is cleans for and stated, refill suppliers about Plainly and consumer our Kroger another previously our sends to packaging transforming growth all model. Restock to empty because sanitizes and customers the sold back for launched

is redefining our entire grocery partnerships experience, the of The start. Kroger on improving exciting year a Restock solid create focused off that second to upon is value. customer The company

to and we purpose-driven in more We than for free are on cash FIFO XXXX. before incremental profit and a and the adjusted ever are investing track also associates targets flow building our operating generate culture,

we on Kroger our As do focused delivering to remain have and I recognize we said on work Restock commitments. earlier,

in I'd since over has the to Gary? turn it CFO Millerchip, to Gary Now role April. been like who

Gary Millerchip

good Rodney, Thanks, morning, and everyone.

Our and of customer and scale, our with Kroger's are Kroger's all first we in-store, the knowledge demonstrate our even across leveraging food quarter strength to connections build insights, unmatched customers assets, of pick-up, Ship. delivery model. diversity Overall, modalities, stronger multifaceted data our business results unique and

headwinds first including As the must had quarter few a during which we know Rodney be discussed, we sales, stronger.

of We $X.XX model, in per also multifaceted experienced result share. others the an similar pharmacy to industry. gross our pressure, diluted margin EPS we adjusted delivered of Because business

highlight to the quarter. a were our like few of I'd business particularly that during strong areas

Alternative and deliver team contributed XXXX. entire a Brands operating brought Our as The incremental leader. us profit quarter up savings delivered plan Kroger profit to and setting and during businesses our driver discipline a the Restock profit for sales Kroger to target exceeded budget, on controlling costs both our first

with providing On that our Restock note, you Alternative businesses greater to to and their last Kroger. contribution transparency quarter we committed on

Rodney profits As of profit in XXXX. in the incremental call, contribute we the Alternative at operating to expect top said $XXX million an

through statements. see line financial reflected will growth You our this margin gross the of

a Please we the X X-K basis industry. reductions refer expenses deeper by of in others identical filing. more more sales. and the provided now we've This as being In appropriately X that amounts the affected Certain on treatment table detail have reflected reflects the with merchandising this to traditionally in these recognized explanation consistent and points, nature first for is OG&A items reclassification. quarter, as and are sales our to costs

expectations, of quarter Finance ahead leading and businesses Kroger XXXX, the our first with are way. Alternative of Personal business the Through media

acceleration media holiday business to growth continued of operating periods. expect We during incremental throughout profit businesses our reflecting and of selling the year, the seasonality vary peak certain

gift visible seasonal, card in most very quarters. therefore, and respective be growth our example, For is will business

the fuel XX without key outperformed of foods, quarter another business. disbursement from pharmacy the first points. Kroger natural of results negatively our and categories, identical basis we The during timing including SNAP company affected strong quarter, by reported X.X% in pet, had the Several beverage sales quarter. departments

throughout We recognize our of identical range year. fiscal require that rest will getting of acceleration sales sales the our into guidance an identical

sales second the performance we working quarter. are We in to are trend seeing diligently improve positive build momentum our and far thus on identical

to we made as move through year, begin investments during second tailwind. expect last period to Additionally, we will a be cycle we which same the the quarter,

to XX.X% lower of gross the operating fuel excluding XX for and decreased for level second of was investments This Gross $XXX sequential sales line pharmacy. first a XXXX. FIFO for compared basis primarily margin quarter, period same quarter. in FIFO of the was profit year, in rates the the our margin represents quarter gross with improvement in from half industry-wide the points to last expectations Adjusted margin due and the million margin first

The was $XX LIFO charge million. quarter for the

quarter consecutive amazing done quarter have shrink shrink, represents seventh which during managing improved rate to This improvement. associates the job first year. compared an of Our prior the the

as cost XXXX excluding items of and OG&A XXXX points. XX a first and adjustment quarter decreased fuel rate sales basis

and these This due by the Kroger And transactions. is estate I year. quarter's were guidance contemplated to primarily execution in transactions the Restock our for planned decrease real EPS planned, initiatives mean of

are the $X.X on Our prior results highlight Kroger savings billion of in year. benefits continued the Restock achieved fiscal building we our making progress and program, with savings

committed our are to find We improvements efficiencies business. additional in and to continuing

the Retail for but to a expectations particularly fuel in overall in growth profit operating be profit fuel year. still half was second headwind in the of we expect the with XXXX, our line quarter,

quarter $X.XX Our $X.XX gallon The versus quarter $X.XX of price same in average year. was retail the in the to first the was year. quarter per fuel last same margin $X.XX cents in last fuel compared

Fuel strategy important customer most our among of households. is our loyal an especially to drive engagement, part

increase quarter. our our saw and the rewards positive with growth in to first fuel continue investment loyal customers in We gallon

a in investments talent variety now of development, development. ways and Turning associates wages, including we in are to training supporting

associates benefits to comprehensive We hour many invest hourly rate as factored benefits competitors per Restock is I'm in recently to Today of over updated Kroger. that in, continue share our of our our $XX part average pleased offer. don't with

was ratified associates recent The The agreement XXX our in of UFCW ratified for labor six every while wages also benefits of increases training. opportunities effort wage in store investments pay most This raises with and our covering regular performance starting Monday and announcement is newly part wages receive our career example most Local on rebalance Indianapolis. contract of a to certifications and will incentives, months. associates and focusing stocks continued

associates, over Your in full are ago. industry-leading energized is six than all Future, available from We after seeing all by also the Future interest significant just our we're launched Feed program assistance hourly Feed service. very associates of are year Your store part-time, education Among months a associates. the participants, more XX% or to

the tightest significantly are of retention in one As we markets in development, our in labor talent a improving result investments of employee years.

Kroger covering we UFCW In the labor the Louisville, with ratified King Denver new and agreement associates first new associates in Indianapolis, a to Kroger in labor Soopers quarter. covering the addition agreement during in also Kentucky associates

the store We Southern covering for Vegas, are and contracts California. Seattle Las UFCW negotiating Portland, with currently associates Memphis, in

every negotiation a that packages fair reasonable quality compensation our in benefits and objective and wages, is Our find good costs and affordable health balance care, to provide competitive between retirement associates. solid for

overall make associates. We benefits package to continue to to today's our strive relevant

be costs, results which care inefficient Our do continue pension pressured financial by our not to some health of face. and competitors

continue to our and our profitable of unions opportunities associates us our help international importance We the way, jobs growing and which career local enhance of business will and our communicate security job associates. unions in create represent with the for on many which a more

generating Restock cash strong Kroger flow. of component A key free is

cash maintaining growth use the current actively investment drive to flow debt rating shareholders. financial cash to our capital We is Our goals. use to balance grade achieve free these and also to while of strategy returning

We debt adjusted is year reduced XXXX. net from at to target of The X.XX, debt is X.X ratio to since XXXX. down billion EBITDA net X.XX range the X.X. $X.X total end net by company's end EBITDA adjusted of ratio debt fiscal to the total total Kroger's

YOU total help We Hill have debt back us use sale and proceeds EBITDA the our target net Technology do range Dairy prioritized getting of into to the Turkey business from the so. and ratio to

unique how I like mentioned We Tech. for acquired to the ago in a years take leveraged than a value to a future the several to reached value more few a shareholders. sold market Kroger, return. of about example bit digital is to a talk into a moments point create the value assets Kroger to significant the earlier YOU great potential nominal shareholder maximize and I'd else it business for developed to business was leader our value This we When coupons. where the someone the business higher little

terms the great YOU of illustration a value margin-rich As Inmar. long-term part how Kroger the are incremental our to we a through of shareholders. new create leveraging businesses unique for to value is asset-light with to assets protected drive the services agreement our of sale, Tech we

to Before guidance discuss turn change reiterate I back to it and XXXX. affects like accounting Rodney, our an reporting financial for I'd our that

of at rent and nearly added we the of You rating agencies adopted already the may and The leasing have sheet. operating year. lease-related the filing their to noticed a the standard earnings assets year. ratings X-K for include liabilities our new for new liability in fiscal that our is beginning calculate not in This standard balance to $X or leases affect assessments, and this expense expected billion

like would gear. guidance our reiterate the I Finally, for to

target sales to For growth X.XX%. we XXXX, range to X% identical identical from sales continue excluding that fuel,

adjusted from come billion from Rodney, in FIFO XXXX, Restock from positions operating expect FIFO deliver EPS per to growth which to $X.X range will XXXX. Kroger's to well to range growth diluted and back net you. continue to on We adjusted billion share, adjusted earnings Kroger. for profit to us $X.XX to $X.XX $X operating profit

W. Rodney McMullen

the Thanks, and quarter. are second Gary. We on start optimistic feel of building we Sales our serving laser-focused at momentum customers. the is

the We uplift. ahead our in our deliver to ability and on are and the food our clear-eyed through and America year for to about inspiration serve plans, long-term challenges both vision confident

questions. forward we your Now look to

Operator

of [Operator session. question-and-answer begin Merrill will go Instructions] with Please question from We the comes America now Our Ohmes Robbie ahead. Bank first Lynch.

Robbie Ohmes

morning, Good thanks. Oh, guys.

W. Rodney McMullen

morning. Good

Robbie Ohmes

my weave trending? a accelerating investment how question a And us is expected bit year, than Is quarter could And of you're less your price or into about, out maybe it this what plays investment plan that now is expecting? talk kind price is expectation what XXXX that Rodney, how into more little maybe year the into remind IDs. be. to for that were you you

a it's the environment promotional been being there than And of then seeing aggressive the in while. competitively. We're also maybe in seeing weave just a in more signs out little environment you're produce

you great. together that If for the picture weave be us, would could

W. Rodney McMullen

Robbie. Thanks,

investments really it we're look at price where to consistent you with tracking If we be. pretty expected overall,

year, flow-through We cycle to that made the we be the will continuing of last to helpful. during so investments are continue

If at not be some changes, recall, the had law it give did reasonable of of you in you from would we It as when some value the our XXXX the a we investments we lower amount. what investment, be rate. XXXX look much XXXX because would as tax accelerated into to XXXX as customers tax the

say or category there's overall, you overall look consistent all-in-all, where When it takes, a and at puts with area but we specific you pretty always pretty before. the with it when at always get it before. would look looks was environment We'll more, it's consistent see and

identicals, us things On is versus really is on space taken tailwind the that's positive. – headwind. the we been it that's becoming has of a expected, – than Obviously, now longer so a accelerating one a optimization been

Just teams in to it's our that a the to data stores, sure on. improving customer experience well. we momentum And of terms target job of making use basic things execution as is are in adding doing right which the great work the our

together of all better then a the it's story. those telling So and customer coming being little our things at bit

Robbie Ohmes

much. so Thanks Terrific.

W. Rodney McMullen

Thanks, Robbie.

Operator

Please Frommer question Credit Judah ahead. The next comes Suisse. from with go

Judah Frommer

the the accelerate. obviously question. the are with Thanks It quarter? Can to and cadence help Hi. fourth throughout the were things Maybe when quarter running earnings finished taking better IDs. you you where you the just follow-up quarter-to-date like sounded us that update on you first gave than with expected a for quarter

contribution remodels, impact of from to relative grocery inflation So online the the your been and expectations? enough have beyond there of roll-out

W. Rodney McMullen

hate up first the quite categories, as you quarter expected Day make great grilling higher Easter. use of Mother's bit impact When the hit and after and as but Day, overall, that look consistent we saw Easter, making for those before sales pretty of a an quarter through just you if up I first at doubt and weather always was weather lull, than all when Right to but a look tracking and in around anything, moving progress no and were the continuing at you things look nicely to excuse the – there's out Inflation – we expectations. at of because Mother's with things.

upscale growth growth, a have continue the item, mentioned, purchase look I in slight And to it but to to the packs. people look continue was I looking at loyal only amount. we saw and the guidance. but per in at a XXXX when household As earlier, continuing far, quarter weeks, at you bigger spend move we great it's moving not When as three closer you headwind, we are we’re total for mentioned so SNAP quarter, huge and second if to

Gary Millerchip

in Rodney, the question add see expected as results and part would only line the certainly thing too we asked the and was continue with around first digital – what overall to of I performance, during engaging the customers we deliver the to we're to the ordering up creating to pick to quarter online digital online from at and ship way are seamless the strong home both that home. ordering or also of in through store terms experience

Judah Frommer

I line more retailer-led sometimes have help their leaning or Is big need moves of with competition? like conversations kind media competitors something Clearly And Does your going these made trends of could vendors, the it as your with you in Okay. plan above or it do? media, external if space, sounds serve platforms feel that box there. on acquiring up in to into follow quickly like are assets. you does some

W. Rodney McMullen

of don't I which wasted, a my able our job media are able spend is to at CPGs do their really great old where partners it helping the and to teams able spend them And help just look us, help half. remember customer. better we're half money. you view behavior understand, money on you adage to of understand the to that as we we and help being it, For when media know companies And CPGs additional what's to the

of successful referenced a view companies the us just we there's plenty the market and And large for of opportunity to you for the such overall grow all to because that enough big other where market it's be to as for market.

results, opportunity, we the when started. of some we're happy exciting. look just incredibly So at are getting I with really it's early know and the the partners

to In terms able accelerate really so we've of world-class been acquiring our partner with companies to somebody, journey. far

over Now, whether I think be time, that changes to it's determined.

Judah Frommer

Great. Thanks.

Operator

Kelly with Edward Fargo. from comes Wells go question next Please ahead. The

Edward Kelly

hi, guys. Yeah,

estate The be that at should the a look Just clarification. if amount is about transaction first, quarter, planned we Is statement quarter? that that the there in $XX the a to I cash contributed about gain. thinking real flow million the

Gary Millerchip

Hi. is right, That's This Ed. Gary. Yes.

we of part prepared mentioned had of actually year our transaction part guidance we notes, the planned the plan. this business As for in the as and

best and aware, you're has we that our as been being do to but use that we're build us places as think around really of many shopping we center have a we of in store make as assets the real always part available make creating of to I strategy start that estate the to and leverage we a how overall that we operate. out tenant anchor and the the most

quarter be, years, had results. some Often estate for because many would sometimes it was especially gain well important We well. transactions we've actually it quarter, that there the felt as than bigger better in be look were because contemplated the as normally amount quarters. obviously as that it was that it one-time of a overall those it it during transaction. But part as in losses helped our this was a transparent, in can the quarter So and was real rate first our absolutely we OG&A expectations to of

Edward Kelly

Any transactions full for other year? estate this the planned contemplated real like

Gary Millerchip

arbitrage can obviously currently. own looking real we're profitability opportunities cash we think I free estate and and our help that where at flow where the the of it especially always we can

get around but shared. not opportunities that we that exist. where they're But we look of for do those we So plans any have, I specific within guidance into wouldn't they overall contemplated certainly details the the

W. Rodney McMullen

everybody the share mentioned, was as And Gary so Rodney. that know. Ed, is this would well would material, guidance. anything in we as it And it If

Edward Kelly

is the for you And Nielsen. here me, actually like peer it's question you, seems be consistently of is biggest real to picture, your with that happening. and and data on to longer that right IDs. one the set company no used issues bigger outperform a my broader industry Rodney, now to And

you are digital Specialty in this north just Your there there. of IDs now. in despite is have that quarter, X% fact the

You are some optimization. lapping

You invested a lot last year.

guess think what share know why so I you do adjustments you the slowed I focused you're improving And but much? making? gains on momentum, specific have are

W. Rodney McMullen

step if rewarding It up really experience. between in customer What there's starts customer we've us make look is when is you we for you improvements checkbook. our game. when a the with to significant made And their basic and of at the the customer improvement experience, lag find some those you

our So and in-stock, doing progress we part the using identicals. our are data pieces, of in track than is and of all stronger that and of in the progress every is those of made friendliness terms week. that we the we've associates, – our this How the

and the the other past. things part before. a had is the sophisticated the I that and we've some return doing, remodels getting the It's but in of using from optimization, growing continued and that upon is what cycling, mentioned way data other in even projects The just space we're a

Edward Kelly

All right. Thanks, guys.

W. Rodney McMullen

Edward. Thanks,

Operator

Please comes Rupesh The next ahead. Oppenheimer. with go question from Parikh

Rupesh Parikh

for our Good Rupesh. taking actually Erica for questions. Thanks morning. This on is Eiler

passed your and being talk this you on prices are touch to wanted bit expectations then of seeing you granular going actually I maybe can inflation. Could forward? you through about, And to what more seeing give maybe food currently point? little in a at the shelf So you're terms

W. Rodney McMullen

happy Sure, I'll talk that. be to about

I And you is inflation know, we of range the expectation look that our results exclude of we QX the about guidance range. you that fuel pharmacy our around. the year, at our X%, calculation, in for built from plan what the X% at and as So end top would to was when and see that be say if talked would we we would

ways coming which maintain are on the saw as team we we increases reason the generally are look are what strategy our being through Where first I to And in during increases strategy. cost goods and very those to them within of year. really the seeing the rest we in legitimate through, during those come generally a our the seeing able that's can would the Certainly customer mitigate that to in quarter we at we robust and for passing process of cost costs through, we the successful business. would ensure say be have cost we're profitability those pricing

One of manage the for feel have really using things significant we our that to that obviously an and products, is we market ensuring share the us so of how effectively we through, as of of a cost see balance true important brand knowing come and price increases increase. and the course cost advantage own that manage it's product and what is for we're great us, with set knowledge those is to

Rupesh Parikh

going. That's Oh, Keep no. helpful. Okay.

W. Rodney McMullen

to the swine there. for challenges was similar think some been also year and general be except of impacts what of things the discussion on we've uncertainties that flu are obviously that in being I the some and some experiencing would our by saying, out for trade was potential I outlook created course like

we're very potential one impact to closely the watching a So items in that two inflation have because more they there obviously way. are or meaningful

a minimal effect be to Hopefully tariffs pretty would works and and it out Tariffs can harder China of from on Yeah, be us a there. manage. is from lot something managed. Mexico

always the cause up just standpoint, the overall As for we you tariffs go to end at customers. from philosophy that costs a believe day of know,

Rupesh Parikh

kind can talk about thinking going dynamics on gross in additional to then on dynamics now forward? how as great just about with those pharmacy going of right the industry margins, the quickly you're color. That's And gross Okay. relates you margin and

Gary Millerchip

Sure.

as context to continue generally satisfaction that more maybe a lot ratings. very is medicine a as loyalty part customer bit ties little strategy of important our First to connection. it's closely our and of customer script a because give think counts us strongly a and during a extremely business it's think very get too food with It's sales and to important strong our very all, part mentioned we of to about quarter, we we as start I'd drives It we to like continuing business. health the very just and grow it to pharmacy and in grow the business of certainly wellness

The business today I we is of a play at we things the seeing gross as really the There's which in profitable couple for are to a within pressure us be certainly us. mentioned, and But QX, unique industry. that high saw margin as generates you wouldn't in mentioned some pressure ROIC.

the we've significantly. a secondly, an is also process, the as pressure generic renegotiation ones on there agreements, cost some in increase renegotiated is first gross big therefore, And the supply cost gone that's challenge, through margin. supplying going of there's our up placing three has there and The PBM of product

pharmacy we said, some being developing and the in finding how improvements continue are extremely pharmacy to of to plans efficiency do and a in effectively to most our That pharmacy significant pressures. a ways to create of how to mitigate see both a we those from offset job buy cost has more team been but that also do nice fill order in team business, really the pharmacy proactive doing efficiency our

W. Rodney McMullen

and And America live partnerships we had business to and other able to we terms in also, a of things, standpoint it's I total our from see business multifaceted help health nice also results. in that as opportunity where own other healthier in as and as mentioned still a things an the I new having before, huge brands mentioned we about life. be And Alternative growth thing a creating move the great forward, wellness

things, able care the we as you that even and to some of discussions past. as bigger we app everything look if food mentioned, that healthier our a increasingly medicine. those see and in Gary lot see, different of eat we than providers, as with opportunity help an people we're And at it's been future And health see in the

Rupesh Parikh

Okay. much. you Great. Thank so

W. Rodney McMullen

you. Thank

Operator

The next Please ahead. Securities. go question Heinbockel comes with from John Guggenheim

John Heinbockel

Hey, topic for organization's the Rodney, address the can change, you right. capacity of

a going got of you've lot change on. So

may than think Do – execution maybe of got impacting any in and all roles. growth? space optimization, it that in You've people other new you way impacting be top-line your is that,

way to impact a might streamline on – sort prioritize your to that, the ability there so And of you better? maybe is then there there that be you manage thoughts some organization's change of go as Curious forward, if things, is that that.

W. Rodney McMullen

some things obviously had organizational question, it's we to that it's and about incredibly that was for one always on routinely. focused people like – with it we business that's and to didn't or daily customer and and to we people own its had we corner the it's And Alternative that the trying sure we of important. that wanted make great stand-alone made one to of opportunity, huge the for a moving reasons were It we that is to us changes of it, something plate – because center have if ourselves, both. talk made dedicated center, do ask of I John, the a the responsible interaction Yeah, of area plate we

in So and that I feel sure incredibly put pieces. good that about all we clarity separating people from the making the place the is

to our months we've recruited outside already over had our a external on the terms we digital talent supplement in vice and areas, of of of internal help our our some talent from talent team, several digital ton of We the journey. accelerate the last some operating presidents, to some have recruited

lot their question. progress while the have attributes little over last new a customer me, you growth. a customer I the loyal stride, at to of enroll to really energy We to a of starting of how good the in show it's up the to growing spend and takes connection for couple I operating make new and starting we're people on it's about great feel they're the talent hit and of on It lot think business, When it. years. look side always a So we

really we're progress. feel we making talent We the to good about and accelerated some have place, in starting it’s So make progress.

John Heinbockel

And Walgreen test in early, know opening sheds Have yet? what then definitive, up look anything as I forward the non-Kroger have it's of you kind Cincinnati, to particularly the you learned in or Ocado markets? learned you not but with

W. Rodney McMullen

are that. the to and continue as early, I say that positive and of to are understand customer likes it store the and dislike partner, thing adapting and and and that Their customer Walgreens. very something would and us very, we both that learning their see together is incredibly really a has an It's changes desires we still teams things fantastic been team

I'll And know, day-to-day to add so you let pretty some I you're specific of from Gary, a it's early it on. basis, much color. the closer

Gary Millerchip

Yeah, sure.

I and and of very really on think we XX we're John, stores XX those convenience seeing, is own something certainly getting level our with different in we're than using we're with ability fact in service. we we're having that service, before Kentucky that the what far, the is by of the Northern to resonating all great learning have are pick-up stores that both alongside with things customers the some so a of that out convenience the the and this like that we first of level quickly with get of were well now feedback

to for what the shopping We're be see trips real those and the a tonight for to certainly speed for I some today to need also out from or starting and need I positive it's whether positive. that's ability lunch of small what customers get in around feedback dinner and and for able

we’ve find generally format that behavior. format ramp-up the as the we with stores the with is and own stores, there stores. seen become our small We've over with shopping seen What small a more years comfortable with convenience that customers

the So data over enhance pouring making the to service experience. to us the approach now for that driven and a sure biggest really data is the and we're using thing continue

John Heinbockel

you. Thank Okay.

W. Rodney McMullen

John. Thanks,

Operator

next The from go Lasser with Michael question ahead. Please UBS. comes

Michael Lasser

a more for far, lot how past trending you're little Good works? question. us sales my full operating the below even range, ID current your a give morning. profit on Thus guidance clarity quarter. Can currently Thanks taking year you in the

has margin been got real expected It in profits pressure quarter, down. sounds first the gain your greater yet and than estate like you the you gross a pharmacy were still

do So level? would to what's more to at get be you the operating guidance full for it take that to get that risk to could your see year? what the profit you harder that path point And here from

W. Rodney McMullen

of make couple comments, on I'll a Yeah, in the and I'll let details. fill Gary

– had you at the Some great positives, control. of the if we expense look

C-store think the Turkey all the of sold Dairy The first is business when the Tech, affected you during And quarter. sold operating other We business. look first YOU which quarter. important the thing always remember sold we to we is Hill in at I year-on-year profit

that to as well. So I important think it's remember

in as mentioned, fill quarter in profit you of And Gary, as more expectations I'll I Alternative first let the the details. exceeded well. the With that,

Gary Millerchip

comparison very the it's year-over-year Rodney. point Yeah, the a made you get adjustments important to correct, around

you for So raising those. thank

we the you about Alternative are shared, excited I a I would components obviously as is profit heading potential already key add, what see where think still beyond and that upside.

pulling to drive ability us continuing financial opening to that we that make that for as other we the I phenomenal the done sure and team a model continuing to savings the that and in continue piece to prepared described generate cost we to are our believe give we're more in I job think levers there in are the as momentum how sales well. has and the continue the will we’re business pull mentioned do to looking comments strengthen is comments still his Rodney efficiency

sure in cost very to it's with making still on operating lot in and goods. So upside mentioned and that certainly more whether how find pharmacy there's I resale think do as for efficient we the creating is it We sales, driving most we earlier. of of store additional focused connecting opportunities us, productivity, model a about customers productivity, make continue and I strongly the sure we're think really we're but

efficient we're are most we As sure do operation, believe can journey continue we there on levers year continue throughout we so that the to as building XXXX. the make retail pull this into and to

Michael Lasser

on given recognizing been think from that the disruption my remodels. lot over you store last question investment, is noise your the quarters, your IDs then the there’s And follow-up a price of Do investments in they the couple are, to have IDs in price might reaccelerate if higher past? as in here? effective quarters as are you from the And have investments your coming price they been drive your will to of

W. Rodney McMullen

think at where customers And their things than And things our price well. of where is remember, to to competitors. we we at One and shop the about important when looking remember is just is our the very look decide price always price. also very more to to market good they’re regional that players relative feel based as customers on relative

When those a our shop you where at from of the of fresh experience look we terms in overall, of the what’s to continue they what’s and meat, terms the in areas customer at speed. experience based if checkout you experience get freshness department, strong and business deli, of the associates, on to produce, the look seafood, and great decides rate

exclusive offers with where And that we to equation. customer rewards, of to we when do And each based job at fantastic then overall that targeted are data that individual look customer. a an important fuel particular our is on you make obviously part rewards use

shoppers. experience, customer you the decides as our had to at, And overall to experience. before, we when where I So total strong look if we and mentioned solid continue in at growth based loyal shop that great look you growth, on we the feel progress and make

Michael Lasser

very you good Thank much, and luck.

W. Rodney McMullen

Thanks, Michael.

Operator

The next ahead. question with go Markets. comes Please from Kelly BMO Capital Bania

Kelly Bania

in Thanks morning. me for here. Good fitting Hi.

W. Rodney McMullen

Good morning.

Kelly Bania

can on couple implies about see ask the year. Had first profit. given $XXX about just comment just specific questions your in on acceleration a release thoughts As plan. plan? Had and it, to you operating read the a but anything you maybe I I that, Street that? that skeptical don’t I morning. huge in I want past, on comment – the to it of to it, really on think into your you’ve good much three-year the million is But pointed out wanted next could too didn’t getting

pieces the real Turkey other between Hill, and Turkey was estate divestiture, your now and Hill with that this there’s of $XX acquisition, transaction, comments million on the a about lot Home I Chef then moving think. And

weren’t So of. that’s million that about aware of $XXX plan XX% we the

or these clearly? to profit operating us understand out a help this kind they of you we can subtract add so model So pieces, how that more moving bit plan little much can

W. Rodney McMullen

business digital support know, Sure. we $X.XX invest the growth, Yeah, our about Restock built experience when would I billion savings you that the overall plan in as and Kroger and of to capabilities. as or whether customer plan, to we think associates $X.XX out, pricing you we think billion value and identified expected was create or then that the in the

I the through billion journey, we’ve around how that the in would unlock are value. where of process the create very we good we $X.XX about look feeling say where you as at learned we – what we’re we and

upside about, talk right are growth for us If heard them you’ve plan point, profit be. Alternative to expected this we and As where continued streams we slightly of ahead great there. at see anything,

last year this identifying As accelerate we our the would cost our obviously were billion say believe to progress plan cost through there I $X.X in and at exceeding efficient we’re successful year savings, as are operator. becoming look savings continue plan a can and the at more that we savings, working we cost we of more

achieve in are I sales his more do consistent think we is to that year the Rodney’s in generating sure sales. we XXXX. as we’ve the shared this comments half in along make That’s that been leverage build momentum the have an continuing we’re that all second in committed way do into important growth to in and to through part obviously and

million to So have I sales line those continue the say we operating we that that get in journey I levers, still the incremental to we’re very together, intended profit. confident And we very and would we the we’re levers of still feeling Rodney to three around where the those with there momentum are a pull in them. $XXX feel committed pull as clear to FIFO think referenced, in as we pieces path build you

Kelly Bania

on Turkey those million, are $XXX And the the Home impact of how those? the Chef, comment real Hill, of any part the estate,

W. Rodney McMullen

was. little right the a sure the we’re to lined where starting place we do bit in so will Yeah, against calculation of point probably place make

what that changes for need incrementally us be would means in going baseline have the the a at with material not a So clarify billion. to be means certainly happened in the what $X.X XXXX. million will to they’re and certainly be baseline, would drastic what couple of down may be there and $X.X but $XXX by to XXXX, they then – There were on that we have the various impact to billion

that built we’ll value Restock the one-off create. that momentum as we rate be We would and into a we XXXX the certainly with the don’t expect the it think builds run XXXX. plan the the contemplate Kroger driver transactions be that to of mindset major about value We generating beyond in

the number getting We’re that for specific focused on drive a XXXX doesn’t value. to not

the certainly But And sale Hill Home the Turkey isn’t in $XXX isn’t million. Chef gain certainly included the in there.

those to we why these create we are. the the none out progress and that is from expect of what kind stripped be That’s in or one-off of transactions there be and those the our individual XXXX today of So XXXX. which to shared None that where between or year. would would where performance in in be are to gain going filling we are a sales if expect asset gap and disposals you like we

Kelly Bania

adjustments, where the can your that. these couple follow-ups you all operating a through the guess with profit FIFO I I you just Maybe see us with plan? share guess five to Okay. quarters

of is past think year said about, terms there Does last to in a of I what then that talking $XXX you’re kind the so us now next and planned the profit, that this and XX% increase And remind you was at? equate the year. year can Alternative you in million

W. Rodney McMullen

Well, the was on in the year growth last quarter, Alternative profit – was XX%.

it would, go at I have quarter a bit look you’ll This was XXXX, if XX%. or been better I I XX% above back if would and little remember you than And so. Gary, right, remember think

how So the we continuing like media if we’ve you as professionals that learn look that at how business, it. to to to know business. it’s grow recruited do And accelerate

where we accelerating actually are. we’re So

on think would be more get question the make the probably Gary sure helpful – better – and follow Rebekah On I it be for of so specifics we and up quarters a little to stuff, and we’re off bit the the that that help can we than five fly.

Kelly Bania

Thank you.

W. Rodney McMullen

Kelly. Thanks,

Operator

with The Sachs. comes next Chris from Prykull go Please question Goldman ahead.

Chris Prykull

taking for Thanks Good question. guys. morning, my

W. Rodney McMullen

Good morning.

Chris Prykull

that. year, firstly guess rest the a the and the of components margin, change year-over-year the gross I on couple maybe to composition of cadence the So

expect to seasonally? mentioned be the in the Alternative from nonfuel of lumpy. basis XX or So to of how Anything improve? attributed similar pharmacy? a mind margin be much rest can the we Should decline You keep year, will can point headwind profits contribution that a for

chain you’re that. I towards lapping quarter. the in some then and shift investments contribution And the supply Brands fourth for understand Our sense Any there? mix

W. Rodney McMullen

finish. and start, I’ll Gary I’ll let

in facilities supply to first first costs investment. On Obviously, quarter those our the of chain terms quarter quarter, facilities business. in the in those middle the in in Northern we serves their Kentucky with And and the Las start-up ramp-up. an to investment of facilities fourth the for the significant continue was have are that pretty similar Michigan, investments Vegas, online

look If to a basis. item, people is XXX usually at penny points Our and than Brands, higher I a at the typically Brands higher cents you when tell Obviously look gross basis margin national per a margin on part higher it’s profit always basis Our brand. or sales it’s two per you XXX points item

Rx the a of the details the terms in of you go of bit year, In balance Gary, I’ll into there. let little

Gary Millerchip

reduction. so gross those continued the meaningful and in would the growth, decline prepared the the was as the we of Pharmacy margin Yeah, mentioned, mentioned quarter gross been combined two with pressure have in pharmacy its remarks, of certainly a meaningful Specialty you Kroger a portion part also margin

the do year, the for the had in another whole last good we second we QX quarter we year, really significant margin and have expect the saw that QX that in like gross feeling expect case. We as about be in to to we versus We’re year. half fact QX a the deceleration to guided and decline don’t of

we business and it adapt loyal the customer were That our to very able obviously customers they base. continue it value the It’s in and tell we’re to invest that will where really dynamically. it on makes growth and important being said, manage price retention and sense drive us

the really there sure to the and be on. the margin focus progresses tend that think profit achieving do how make as managing shared. some on guidance We operating in will we business EPS the we pressure to that we’re So we’re to overall year Rx continue

and sure cost there the As saving that. of balance initiatives that impact to finding manage ways very we’re that out I making pressure also our a good that mentioned earlier, doing introduce job is the team in

drive to sales expect be rest would the impact of the improvements we So the drive less plan execute a to certainly continues growth on in and year the overall profitability. team as in strong to

W. Rodney McMullen

gift the always items. in cards and is related because fourth quarter profit Alternative And strongest the of other

Operator

that will with go line. Research. will And with from Please from next Chuck ahead. be And The Mr. Northcoast his Cerankosky ahead. Michael question come ISI. dropped Montani Cerankosky Evercore go question Please

Michael Montani

for Thanks question. taking Great. the

investments gross you. is core and core some the inflation, have the incrementally what supply consumable margin the you you the what tonnage. on back then Just pharmacy, talk follow-up the us comp? business, for quarter there? seeing Thank grocery the on are of and saw in can there you could. you after the about out trend Just X% you there you given the Did some the give on growth X.X% And in if color chain

W. Rodney McMullen

at Yeah, on units, equivalized the have on if it you been tonnage look growth. continued the would

investment whole Gary category. packs improvement as want bigger at which buying had a look add going, goods through meaningful we customers would it a investment, that? funded be across Gary, things as see of you bit the to of core to other and but of continue When anything little mentioned, cost continued negotiation quite to you bit margin, well. We in gross

Gary Millerchip

think it Rodney. well, said you I

W. Rodney McMullen

Okay.

W. Rodney McMullen

is our are one of Before our many course, well. in our to we associates gain associates insights of end as many of that things the today’s call about better understand our listen and And business. shareholders of that’s earnings call, exciting into

our today’s share day. call, a purpose always, how directed and to as our associates to like live all us So I’d before end every comments we few final of

during incredibly As Memorial so celebrating me Kroger between takes Independence served Day. our America’s who the proud American in men patriotic that feel forces. armed serving It Day have employs many and heritage always role makes grocer, Kroger women or uniquely our currently season and the seriously

chance raise I Saturday our who purpose Resource Veterans for put with Associate our on to got money personally veterans. XK a last Group to run live

to a didn’t a add our then would first. certainly of a I deserving kind race, tiny up his for finish that and Touring did last different specifically have close and and associates built designed I like in nowhere local house the dreamed either, family. caring I veteran first, to While

green impact solar The Kroger’s commitment built Zero home panels, features to plan. and demonstrating passion our recycled made social Hunger/Zero technology for materials, and standards, to from was associates’ Waste

to it of Cincinnati our Kroger donated and house a great. card turn gift home, the a to addition new bag home, Brands a Dayton In a Our really products tiny felt division and into

largest members In keeping to with One is our of this $X of and It the and million commitment, to service USO. USO be event America’s the as all are hosting many and a Kroger past with commitment presenting ways to America’s single our at contributing troops donor shows is $XX at serve the our their privilege for July. to Fort through donation barbecue we a the is million over gratitude in will Stewart we Kroger grocer long-standing over heroes. the appreciation honor our the USO, family decade. the

Thank That you for year. business of successful to call our make suppliers the completes associates today. all our of who Thanks and joining. day our every customers,

Operator

you concluded. now conference Thank The for is today’s attending presentation.

disconnect. You may now

The Kroger Co. (KR) 20 Jun 192019 Q1 Earnings call transcript